Tuesday, February 19, 2008

CAFE is Unnecessary at Best, Damaging at Worst

Lesson Two: Market forces, not government regulation, provide the most effective impetus for higher gas mileage. America's Corporate Average Fuel Economy (CAFE) law -- the latest version of which requires car companies to average 35 mpg across their model lineups by 2020 -- provides posturing for politicians and comfort for their more-gullible followers who believe in free lunches. But CAFE, which first became law in 1975, didn't prevent the SUV boom in the 1990s that environmental groups so disdain.

During that boom both consumers and car companies were reacting to market forces, not CAFE. For consumers, the market force was cheap gasoline. For auto makers it was profits, which are more substantial on SUVs than they are on fuel-efficient small cars. In fact, GM, Ford and Chrysler gravitated toward SUVs because they couldn't make any money on regular cars.

This sorry situation might change now. Thanks to the new contracts with the UAW -- that allow the companies to hire new workers for lower wages and to buy their way out of lifetime health-care guarantees to legions of retirees -- the Detroit Three finally might find profits in the smaller, fuel-efficient vehicles that more Americans now want. Likewise, market forces are spurring research on alternative engine technologies that could produce a breakthrough in five to 15 years.

CAFE is unnecessary at best and damaging at worst. The regulatory costs might wipe out much of Detroit's savings from the new labor agreements.

~WSJ Editorial by former WSJ Detroit bureau chief Paul IngrassiaUpdate: Related editorial in today's Detroit News by its editorial cartoonist, Henry Payne "California Eager to Hit Detroit with Ineffective Fuel Rules, But Won't Consider Increasing Gas Tax":California already has the power to battle climate change. It, like all other states, can raise its gasoline tax any time it wants. And raising the price of driving by increasing the gasoline tax, most economists agree, is the fastest way to get drivers to drive less and buy more fuel-efficient vehicles.

But there is no groundswell for a gas tax hike in California, where even the nation's greenest electorate recoils at the idea of putting its money where its mouth is.

Gas tax? I have a better idea. Remove the tax breaks given for oil exploration and refining. Charge real life lease rates for pumping oil from federal land. Allow the price of gasoline to reflect the true cost of oil.

This is one point I can agree upon, and that is quite rare as some may have seen.

I just hope it's not the end of the large, affordable(to the masses) car though. It's fine enough to have alternative fuels, just not have the environment regulations make the cars smaller.

As for fixing gasoline to $3, no thanks - environmentalism has done enough damage on the upswing, damage on the downswing makes it worse. It just means those who have the means to evade environmentalism will still be out there (and may even be the hypocrites of the bunch, pleading for environmentalism).

Ingrassia's premise, "But CAFE, which first became law in 1975, didn't prevent the SUV boom in the 1990s" is faulty given that SUVs, though used like passenger vehicles, are treated as 'commercial' trucks and have thus been largely unaffected by CAFE. Had SUVs been included under the CAFE standards, the SUV boom may very well have been reduced.